Morgan Stanley
  • Innovation LAb
  • Oct 21, 2020

A Shift Toward Inclusion

Alice Vilma, Managing Director and Co-Head of the Multicultural Innovation Lab, writes that the venture capital landscape has been fundamentally altered, but it might be more inclusive now than before.

The uncertainty of the past six months has brought profound changes to the venture-capital funding landscape. After an initial slowdown, investment levels have recovered, as VCs look for companies well-positioned to add value in this new, socially distanced reality. It is now widely recognized that the pandemic has been a boon for technology companies. What is less discussed, but perhaps equally profound, is that the recent social justice awakening is changing investor behavior as well.

While the pandemic has altered the ways we live and work, the social justice movement has altered the way we view the structures that unfairly disadvantage certain groups, specifically Black and African American citizens. It has caused us all to re-examine the role we play, consciously and subconsciously, in reinforcing these structures. 

For VC firms, much of the conversation about inequality has focused on how their investment decisions may perpetuate the funding gap facing women and multicultural entrepreneurs. Some are realizing that they are leaving money on the table when overlooking startups founded by diverse entrepreneurs.

I have these conversations with investors and entrepreneurs every day at Morgan Stanley’s Morgan Stanley Inclusive Ventures Lab. We founded the Lab in 2017 to study the funding gap and to be part of the solution to close it. As part of the Lab, we offer tech and tech-enabled companies founded by women and people of color with exactly the things that have traditionally been elusive: content in the form of a tailored curriculum; capital in the form of a Morgan Stanley contribution; and connections in the form of access to our global network of experts and investors.

As expected, many companies from our Lab continue to thrive during this period because they solve for pain points exacerbated by the pandemic and they are tech-enabled. CariClub, for example, is a social impact platform that connects young professionals to nonprofit associate boards, something that would otherwise be extremely difficult in a moment when in-person introductions are impossible. Another example is Care Advisors, which helps expand access to healthcare and social services by automating enrollment processes, a solution that couldn’t be more crucial during a pandemic. Five-to-Nine, to name one more, helps companies engage with their employees, a task made substantially more challenging in remote-work environments.

But these three companies—and many more like them—are resonating with investors not only because their technology fulfills the needs of our socially distanced moment of crisis, but also because attitudes within board rooms are beginning to change. Historically, many investors would pass on women and multicultural entrepreneurs because they either couldn’t relate to the entrepreneur or the problems that these entrepreneurs were attempting to solve. With different lived experiences, investors have at times struggled to understand the market opportunity for women and multicultural communities.

We are now seeing investors make concrete commitments to engage with women and multicultural entrepreneurs. Especially with the acceleration of the social justice movement, we’re seeing a significant uptick in VC interest in African American-led startups as witnessed during our fourth annual Multicultural Innovation Lab Showcase and Demo Day.

There is plenty of buzz about how the pandemic has shifted investment flows toward the likes of telehealth, ed-tech and collaboration software. But another trend lies below the surface. Investors are starting to acknowledge their blind spot when it comes to multicultural and women entrepreneurs—and the returns they may be missing as a result. Even at this pivotal moment in the middle of a pandemic, the shift in the funding landscape is something we can feel optimistic about.